Ukraine: The Largest Fines Imposed By The Antimonopoly Committee Of Ukraine In 2018, And Its Enforcement Priorities

Last Updated: 4 April 2019
Article by Anastasia Usova and Nataliya Kovalyova
Most Read Contributor in Ukraine, April 2019

This overview is prepared based on the decisions issued by the Antimonopoly Committee of Ukraine (the "AMC") during the period from January to December 20181.

Merger control violations*

  • In 2018, almost a third of the decisions of the AMC to impose fines for merger control violations (92 of 25 decisions) were issued in relation to foreign-to-foreign concentrations. The largest and the lowest fines for failure to notify foreign-to-foreign concentrations were EUR 16,100 and EUR 5,360, respectively.
  • The AMC imposed a record-breaking fine of EUR 473,000 for failure to notify a concentration relating to the indirect acquisition by a sanctioned individual, an associate of former President of Ukraine Mr Viktor Yanukovych, in 2013 of some 80% of the shares of Brokbusinessbank – one of the largest Ukrainian banks.
  • To date, the second largest fine in the history of the Ukrainian merger control, of some EUR 110,000, was imposed by the AMC in 2016. In this case, the control was acquired over a company through the appointment of a member of the supervisory board who already held a director's position in another, unrelated, company. In its recent merger control reviews the AMC generally pays more attention to the facts of cross-directorship that result in the creation of control relations between different undertakings.
  • Overall, the authority now tends to impose higher fines, and the trend of stricter enforcement in merger control violations is expected to continue.

Please see pages 2-4 of the AMC Fines Review Table for more details

DOWNLOAD AMC Fines Review Table

Phase II cases and remedies

  • In 2018, the AMC received 532 merger control applications (compared with 666 in 2017) and considered 453 of these; 79 applications were rejected by the AMC as incomplete, or were withdrawn by the parties.
    In 2018, the AMC initiated Phase II in 253 cases, which related to 13 transactions structured in such a way that they required formal submission of several merger applications. Amongst 25 applications that were reviewed by the AMC in Phase II, the AMC granted approval in 19 cases while six others were closed without issuing a decision, including three involving parties subject to economic sanctions.
  • Interestingly, in 2018, all deals reviewed in Phase II received unconditional clearances. In 2017, amongst 11 Phase II decisions4 there were only three clearances with behavioural remedies, such as commitments not to engage in input foreclosure by unreasonably restricting access to relevant markets and reporting obligations regarding volumes of production, sale, export and import of goods; provision of copies of distribution agreements; and notification of price increases by more than 10%.
  • The number of Phase II reviews in 2017-2018 fell significantly as compared with previous periods; for instance, in 2016 the AMC cleared 54 concentrations as a result of Phase II, and in 2015 – 72. Such a decrease in the number of Phase II investigations is mainly due to amendments to the competition laws. Starting from mid-May 2016, the AMC may initiate Phase II only if a concentration may lead to monopolisation or a significant restriction of competition in the Ukrainian market or a significant part of it5.

Limitations on sanctioned companies and individuals

  • In 2018, the AMC blocked three transactions6 relating to the establishment by three independent founding parents (all foreign parties) of a joint venture outside of Ukraine as one of the founder's beneficiaries (a citizen of the Russian Federation) was subject to economic sanctions, introduced in connection with the Russian occupation of Crimea and the Donetsk region of Ukraine under the Law of Ukraine "On Sanctions".
  • Starting from December 2017, concentration shall not be cleared by the AMC if it is prohibited due to the Law of Ukraine "On Sanctions". As part of the merger control filing, each applicant should indicate if any individuals / legal entities related to it by control relations are included or not in the Ukrainian economic sanctions list. If yes, the respective applicant needs to justify that such legal entities / individuals and applicable economic sanctions have no impact on the particular transaction. Based on the review, the AMC then decides whether due to the sanctions the transaction should be blocked or not.

Antitrust investigations carried out by the AMC

  • In 2018, the AMC particularly focused on investigating the following markets:

    • supply and distribution of pharmaceutical products;
    • wholesale and retail sales of liquefied petroleum gas used as motor fuel;
    • wholesale of ethyl alcohol;
    • distribution of eco-labelled goods; and
    • distribution of food and beverages, in particular, alcoholic beverages and confectionery.
  • As a result of the investigations, the following largest fines were imposed in 2018**:

    • a EUR 1.3 million fine (in total)7 was applied to the five largest retailers (the "Retailers") of liquefied petroleum gas used as motor fuel ("LPG") for alleged parallel pricing behaviour in retail in August 2017. The AMC stated that such behaviour resulted in the unjustified overpricing of LPG and allowed the Retailers to benefit from the increased retail margins. According to the AMC, the Retailers also unreasonably increased their wholesale prices for LPG, thereby putting at a competitive disadvantage other smaller retailers which did not import LPG but purchased it from the Retailers for further resale in retail;
    • a EUR 1.04 million fine was applied to the state enterprise "Ukrspyrt" for abuse of its dominant position in the wholesale market for rectified ethyl alcohol, in particular, by setting different prices and discounts which did not correlate with purchase volumes of different buyers (e.g., buyers with larger purchase volume plans had higher purchase prices; or the same price applied to buyers with different purchase volumes). The AMC concluded that such discriminatory pricing without any objectively justified reasons could put some of the buyers at a competitive disadvantage;
    • after six years of investigation, the AMC imposed a fine on Roche Ukraine LLC (EUR 290,000) and its three largest Ukrainian distributors, namely BaDM LLC (EUR 170,000), Business Centre Pharmacy LLC (EUR 100,000) and Alba Ukraine PrJSC (EUR 10,000), for anticompetitive concerted practices which allegedly led to the overpricing of pharmaceuticals sold in public procurement tenders (the "Tenders") during 2012-20168. According to the AMC, bonuses granted to the distributors ex post in the form of non-repayable financial aid after winning of the relevant bid, and calculated as a percentage from the respective Tender sales, were not reflected in the Tender prices. According to the AMC, since the bonuses were not passed on to end-consumers, they only served as a source of additional profit for the distributors, and led to the unjustified overpricing of Roche's pharmaceuticals sold in Tenders as compared with the retail prices for the same medicines sold in pharmacies.

      This is the fourth fine imposed in a series of pharmaceutical investigations within the same probe dating back to 2012. In 2017, a much higher fine was imposed on Sanofi Aventis Ukraine LLC (EUR 2 million) and its two largest distributors: Optima-Pharm LLC (EUR 1.2 million) and BaDM LLC (EUR 860,000) in relation to their distribution practices. All of the respondents have successfully reversed the AMC decision in court as being based on insufficient evidence that the rebate system introduced by Sanofi had anticompetitive effects in the form of market foreclosure for cheaper generic substitutes of Sanofi's products and overpricing of Sanofi pharmaceuticals sold at public procurement tenders.

      Interestingly, in January 2019, in another case relating to the same probe, the AMC issued recommendations to Bayer LLC and its three Ukrainian distributors to "stop practices containing signs of violation of the competition law by bringing their contractual arrangements in compliance with the competition law". According to the AMC, the main difference between this case and all previous pharmaceutical cases is "absence of appreciable effect in the form of unjustified price increase for pharmaceuticals sold at public procurement tenders".

      To enhance legal certainty, in February 2019, the AMC issued guidelines on vertical restraints relating to the supply and promotion of pharmaceuticals. The guidelines are aimed at providing practical guidance on the assessment of vertical agreements in the pharmaceutical sector and clarifying which distribution practices (e.g., particular sales promotion activities, conditions for provision of discounts, rebates and bonuses, pricing conduct, reporting obligations, etc.) may have anticompetitive effects.

Footnotes

1 According to the Annual Report of the AMC for 2018, as well as publicly available information, based on the decisions and information notices published on the AMC's web-site.

2 According to our internal calculations, based on the decisions published on the AMC's web-site.

3 According to our internal calculations, based on the decisions and information notices published on the AMC's web-site.

4 According to the Annual Report of the AMC for 2017.

5 Before mid-May 2016, the AMC could initiate Phase II if there was a need to conduct an "in-depth comprehensive market study or analysis".

6 According to the Annual Report of the AMC for 2018.

7 In 2016, the AMC imposed almost a fivefold fine of EUR 7.3 million on seven petrol retailers for alleged parallel pricing behaviour in the market of retail sale of petrol and diesel. As of 18 March 2019, four retailers are still challenging the AMC decision in court. The claims of the rest of the retailers were dismissed and two of them already paid their fines.

8 As of 22 March 2019, Roche Ukraine LLC, BaDM LLC and Business Centre Pharmacy LLC are challenging the AMC decision in court.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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